Again, last week’s analysis of US Oil expected downwards movement for both the main and alternate Elliott wave counts.

This is what happened.

Summary: Downwards movement is expected to continue for several weeks. How low downwards movement goes may indicate which wave count is correct. Downwards movement may only be a second wave correction to end about 31.21. A new low below 26.06 would confirm an extending fifth wave to move substantially lower with the next target at 11.98.

New updates to this analysis are in bold.

MONTHLY ELLIOTT WAVE COUNT

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US Oil has been in a bear market since August 2013. While price remains below the upper edge of the maroon channel drawn here and below the 200 day simple moving average it must be accepted that the bear market most likely remains intact. Price has turned back down from the 200 day moving average and back into the maroon channel.

The structure of primary wave 5 may be complete. This wave count has a problem though: primary wave 5 looks like a three wave structure at the monthly chart level. It may only subdivide as a five.

If primary wave 5 is complete, then the zigzag of Super Cycle wave (II) would also be complete. Super Cycle wave (III) must move above the end of Super Cycle wave (I) at 146.76. Within Super Cycle wave (III), no second wave correction may move beyond the start of its first wave below 26.06.

DAILY ELLIOTT WAVE COUNT

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This wave count is identical to the alternate below up to the high labelled intermediate wave (2).

The maroon channel is slightly redrawn. Draw the first trend line from the ends of primary waves 2 to 4, then place a parallel copy on the end of primary wave 3. The channel has been breached by one small daily candlestick. With price immediately returning into the channel, this breach is unconvincing, but it is a warning that the trend may have changed.

If Super Cycle wave (II) is a complete zigzag, then Super Cycle wave (III) must begin upwards. So far intermediate wave (1) may now be complete as an impulse.

Intermediate wave (1) lasted 28 days (not a Fibonacci number). Intermediate wave (2) should last longer; corrections are usually more time consuming than impulses, particularly first wave impulses. Intermediate wave (2) is most likely to be a zigzag and most likely to end about the 0.618 Fibonacci ratio at 31.21.

Intermediate wave (2) may not move beyond the start of intermediate wave (1) below 26.06.

ALTERNATE MONTHLY ELLIOTT WAVE COUNT

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With the maroon channel being overshot, now this wave count has reduced in probability.

This wave count expects to see an extended wave for primary wave 5, which is common for commodities. This wave count expects primary wave 5 to look like a five wave structure on the monthly chart when it is complete.

Cycle wave c may end with an overshoot for the lower teal trend line for this wave count.

ALTERNATE DAILY ELLIOTT WAVE COUNT

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If there has been no trend change and if primary wave 5 is incomplete, then at this stage this is the best wave count I can see.

This wave count is identical to the main wave count up to the high labelled intermediate wave (2).

Thereafter, it sees only minor wave 1 within intermediate wave (3) complete. Minor wave 2 is seen as an expanded flat correction.

Minor wave 2 is ten days longer in duration than intermediate wave (2) one degree higher. This wave count now has a problem with proportions.

Minor wave 2 should have found strong resistance at the upper edge of the channel. It should not be showing up so strongly on the monthly chart. This now gives the wave count an atypical look which reduces its probability.

Minor wave 2 may have ended just above the 0.618 Fibonacci ratio of minor wave 1.

At 11.98 intermediate wave (3) would reach 1.618 the length of intermediate wave (1).

If price makes a new low below 26.06, this wave count would be confirmed.

Minor wave 2 may not move beyond the start of minor wave 1 above 50.93.

TECHNICAL ANALYSIS

MONTHLY CHART

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Price shows divergence with RSI as price moved lower.

The fall in price was supported by volume.

The candlestick for 1st February is a doji. If the candlestick for March closes well into the real body of the candlestick for January, this will complete a morning doji star candlestick reversal pattern. Again, this is a warning of a trend change and not definitive. There is an example of a stronger candlestick reversal pattern on this monthly chart for March and April 2015. April 2015 completed a bullish engulfing candlestick pattern; this is the strongest reversal pattern and this example was particularly strong. Yet it only translated to one more month of slight new highs in May before the downwards trend resumed.

On Balance Volume has broken below two trend lines. If OBV can break above the lower line, this would be a bullish signal and would support the main Elliott wave count.

DAILY CHART

Click chart to enlarge. Chart courtesy of StockCharts.com.

Along the way up, price has continued to find support at the 9 day EMA. Price is now moving below the 9 day EMA adding confidence in a trend change here (at least short term).

The volume spike of 18th March looks like a reasonable blowoff top typical of commodities. This indicates a correction may arrive from here.

ADX and ATR now agree: the market is not trending; it is consolidating. Both ADX and ATR are declining. ADX has not yet indicated a trend change.

On Balance Volume has broken below the green trend line. This line offers good technical significance because it is horizontal, has held for over a month, and has been repeatedly tested. This is a strong bearish signal. OBV may now find support at the new blue line. If this line is broken in the next week, then more confidence may be had in the Elliott wave count.

RSI and Stochastics are returning from overbought (or close to it in RSI’s case). There is room for more downwards movement as neither are oversold yet.

This analysis is published @ 12:18 a.m. EST on 29th March, 2016.